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story.lead_photo.caption A shopper looks at clothing last week at a Kohl’s Corp. department store in Peru, Ill. Kohl’s and the J.C. Penney Co. department store chain posted quarterly sales declines Tuesday.

NEW YORK -- The outlook for department stores got murkier Tuesday after J.C. Penney and Kohl's reported fiscal first-quarter results that showed they struggled at the start of the year.

Penney, which has been trying to turn around its business for several years after a disastrous reinvention plan, reported a wider-than-expected loss and sales declines during the quarter. Kohl's sales momentum took a pause during the quarter, as well, and it cut its fiscal 2020 profit outlook as it struggled with slumping sales. It cited damp weather that cut into sales of spring clothing and a competitive environment in discounted home goods.

The downbeat reports from the midprice department stores, announced Tuesday, were in contrast to Macy's performance, reported last week. Macy's first-quarter profit smashed Wall Street estimates. Macy's also put up its sixth-consecutive quarter of increases in comparable store sales -- or sales in stores open a year -- fueled by its robust online business after a three-year sales slump. However, it's still facing challenges to attract shoppers.

Department stores have been trying to reinvent themselves as more shoppers go online. They've also been hurt by increasing competition from the likes of T.J. Maxx and other off-price stores, which offer coveted brands at cheaper prices. T.J. Maxx's parent reported strong results Tuesday that topped Wall Street estimates, indicating that shoppers continue to be drawn to its treasure-hunt experience.

Nordstrom was expected to report fiscal first-quarter results late Tuesday.

To lure customers, department stores have been doing a variety of things such as offering exclusive merchandise and adding online services. Last month, Kohl's said it was expanding its partnership with Amazon with plans to accept Amazon returns in all of its 1,150 stores starting in July. Kohl's also announced Tuesday that it's debuting an exclusive collection with designer Jason Wu as a way to get younger shoppers into the stores.

"The middle market is collapsing," said Steve Dennis, a strategic retail adviser. "They're fighting so many head winds."

Department stores are facing the threat of escalating trade wars with China that could mean higher prices on clothing and other goods. Retailers had been left largely unscathed by the first several rounds of tariffs since they focused more on industrial and agricultural products. But products such as furniture saw an increase in tariffs to 25% two weeks ago. And now the administration is preparing to extend the 25% tariffs to practically all Chinese imports not already hit with levies including toys, shirts, household goods and sneakers, which furnish department stores.

J.C. Penney and Kohl's both said there's been minimal impact from the tariffs already in effect, but they say the fourth round has them especially worried. Their comments echoed those of executives from Macy's and Walmart last week. The question is how resilient shoppers will be in the face of higher prices even as the economy remains strong.

"The year has started off slower than we'd like, with our first quarter sales coming in below our expectation," Michelle Gass, Kohl's chief executive officer, said in a statement. "We are actively addressing the opportunities that impacted our first quarter sales, and we have strong initiatives that will enhance our sales performance in the second half."

Kohl's Corp., based in Menomonee Falls, Wis., reported first-quarter net income of $62 million, or 38 cents per share.

Earnings, adjusted for asset impairment costs, came to 61 cents per share, missing the average Wall Street estimate of 67 cents per share.

The department store operator posted revenue of $4.09 billion in the period, also falling short of forecasts of $4.2 billion.

Kohl's now expects full-year per-share earnings in the range of $5.15 to $5.45, down from a previous range of $5.80 to $6.15. Analysts expect $6.03 per share for the year, according to FactSet estimates.

Meanwhile, Penney's CEO Jill Soltau, who took the helm in October, is facing more pressure to turn around its business. The Plano, Texas, company is bringing in new executives while trying to come up with a plan to get shoppers into its stores. On a conference call, Soltau declined to divulge specifics and said that she wasn't ready for "prime time."

J.C. Penney Co. reported a quarterly loss of $154 million, or 48 cents per share. Losses, adjusted for one-time gains and costs, came to 46 cents per share. That's worse than the per-share loss of 39 cents Wall Street was expecting, according to a survey by Zacks Investment Research.

The company's revenue was $2.56 billion, down 5.6%. Same-store sales fell 5.5%. The company attributed part of the sales drop to its move to get rid of major appliances and furniture, which were eating away at profit margins.

Business on 05/22/2019

Print Headline: Kohl's, Penney log 1Q struggles

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